Celebrate gutlessness!

So goes the thinking of a lot of historians. And of some stock analysts and money managers.

One of the latter is Ken Fisher. He writes for Forbes.

Fisher reckons House Speaker Nancy Pelosi should continue to spend her time travelling. Because “She can get more done outside the Beltway than inside it.”

He feels the Democrats’ majority is too thin to allow them to pass significant legislation. “In that regard they are in the same position as the GOP in 2005-06. The Democratic Congress has scarcely legislated at all. Markets love that. Gutless is great.”

Fisher writes: “In years when Congress is active...demand for stocks and bonds falls.” This is because when Congress is active its new laws change the rules. The rule changes roil business conditions. They make a lot of things unpredictable. Not good for markets.

But when Congress is more evenly balanced, there are fewer surprises. Fewer big changes.

“For this year and next anything important that Congress passes, and there will be precious little of it, can be vetoed with impunity by our lame-duck President. What a beautiful world. Celebrate gutlessness! If you haven’t already done so, buy stocks.”

He adds “The less that lawmakers can do, the less damage they can do.”

Will Rogers liked the times when Congress did nothing. “Never blame a legislative body for not doing something. When they do nothing, that don’t hurt anybody. When they do something is when they become dangerous.”

I have seen studies that argue that the best tax and economic legislation comes when Congress is hogtied in this way. That is, the laws that do manage to get through tend to be more helpful. More helpful than laws passed when one party or the other has a huge majority.

This makes a lot of sense.

Suppose we position members of Congress along the political spectrum. The political seesaw. We will end up with small numbers on the far left. And small numbers on the far right. And lots of members in the middle.

Do the same with voters. You will get the same results. The most of them will be always in the middle.

When Congress is fat with one party, the seesaw tilts. Those on one end get the thrills and view. The voters in the middle of the seesaw can get ignored. And while they get ignored, so do the voters on the end that lands in the dirt.

Add the two groups together. The folks in the middle and the folks on one end of the seesaw. They are a majority. But the laws that come out of a lopsided Congress often rub them the wrong way.

In a lopsided Congress the leaders don’t have to negotiate with the other side. They have enough votes without them.

In a lopsided Congress the leaders don’t have to parry and thrust with the President. They can over-ride his veto.

When Congress is balanced the leaders have to negotiate with the other side. They have to listen. They have to compromise.

We just saw this happen with the funding of the Iraq War. The Democrats on the left did a lot of grand standing. They boasted they would shut down the war. They would set a date for bringing the troops home. Yet they could not muster enough votes from the middle to over-ride the Bush veto. In the end they caved. They negotiated. Give us a few billion for pet projects, they told the President. And we’ll deliver a bill that funds the troops without a withdrawal date. He did and they did.

Some Presidents see opportunities with congresses like this one. They figure they can propose legislation that appeals to the middle of Congress. They can horse-swap with both parties in that middle. They can ignore the howls from the extremists on the far left and right. And they can get something meaningful passed.

When they do, it only seems like Congress is gutless and do-nothing. Because a lot of what it accomplishes it does without much fanfare.

In the meantime, Ken Fisher suggests you buy stocks and enjoy this bull market.

From Tom ... as in Morgan.

For more columns and for Tom’s radio shows (and to write to Tom): tomasinmorgan.com.